LABOR LAW GUIDE

Chapter 7 Employment Adjustment

Section 1: Dismissal for Managerial Reasons Ⅰ. Concept. Ⅱ. Requirements (1/2)

Ⅰ. Concept

Dismissal for managerial reasons is to reduce the number of employees due to organizational restructuring in order to adjust to economic, industrial, and technical changes, or to renew a group of employees. Dismissal for managerial reasons discharges employees not because of any fault, as in ordinary or disciplinary dismissal, but on account of managerial business conditions.
A dismissal with proper cause shall satisfy the following conditions. If these items are satisfied, the employer can be exempt from legal responsibility as proper cause under the four conditions of Article 23(1).
① Urgent necessity in relation to the business; ② efforts were made to avoid dismissal; ③ fair criteria for the selection of those persons subject to dismissal; ④ the employee representative is informed 50 days in advance and after consulting in good faith.
Each of the above qualifications is not defined or fixed, but shall be determined flexibly in relation to meeting other requirements in actual cases. Whether the dismissal for managerial reasons in a substantial case meets each of the above requirements shall be judged synthetically in consideration of each individual situation related to each requirement.

Ⅱ. Requirements


Article24 of the LSA. Restrictions on Dismissal for Business Reasons
① Where an employer wishes to dismiss a worker for business reasons, there must be an urgent necessity in relation to the business. It shall be deemed that there is such an urgent business necessity in the case of a business transfer, merger, or acquisition of the business to prevent business deterioration.
② In a case following under paragraph(1) , the employer shall make every effort to avoid dismissal and shall establish and follow reasonable and fair criteria for the selection of those persons subject to dismissal. In any case, there shall be no discrimination on the basis of gender.
③ Where there is an organized labor union representing more than half of the workers at a business or business location, the employer shall inform and consult in good faith with the labor union (where there is no such organized labor union, this shall refer to a person who represents more than half of the workers - hereinafter referred to as “employee representative”) regarding the methods for avoiding dismissals and the criteria for dismissal under the provisions of paragraph(2) at least 50 days before the intended date of dismissal.



1. Urgent necessity in relation to business

Here, urgent necessity in relation to business is not only limited to conditions in which the company needs to prevent bankruptcy, but also includes conditions in which the company must reduce its employees in order to prevent imminent danger.

▶ Concrete examples
① When facing financial crisis due to continuous business deterioration;
② Termination of certain production lines due to business deterioration;
③ In cases of business transfer, merger, or acquisition of the business to prevent business deterioration;
④ In cases where personnel reduction is admitted as objectively reasonable(this not only includes dismissal due to business deterioration but also dismissal for technological reasons to promote productivity or to change the working structure to recover or to promote competitiveness and introduce new technology, and dismissals due to company restructuring after technological innovation); and
⑤ In cases where there is a surplus of employees due to business restructuring, such as streamlining the organization, etc.

(1) Degree of urgent necessity

1) In practice, a workforce cut for urgent managerial reasons must be carried out not merely to overcome the poor performance of a business but also to change work organization or introduce new technologies with a view to improving productivity or restoring or strengthening competitiveness, or to keep up with the innovations and structural changes in the industry. Namely, dismissal for managerial reasons has been conducted on the grounds of technological needs as well as managerial needs. Accordingly, the requirement of urgent managerial reasons should not be interpreted to mean that only the need to keep the business afloat is justifiable. Rather, it seems that when a workforce reduction is reasonable in objective terms, an urgent managerial reason for dismissal exists.
2) According to a Supreme Court ruling, The requirement of ‘urgent managerial reasons’ should not be interpreted to mean that only the need to keep the business afloat makes dismissal justifiable. Rather, it seems that when workforce reduction is reasonable in objective terms, ‘urgent managerial reasons for dismissal exist. That is, a workforce cut for urgent managerial reasons has been carried out not merely to overcome the poor performance of a business but also to change the work organization or introduce new technologies with a view to improving productivity or restoring or strengthening competitiveness, or to keep up with the innovations and structural changes in the industry.

(2) Continuity of necessity in relation to business

Urgent necessity in relation to business for the purpose of dismissal for managerial reasons requires deterioration of the business by which the company is obliged to reduce a number of employees, and the financial difficulties that have been repeated and cannot be expected to be overcome in the near future. Accordingly, the fact that a strike by the union made it impossible to maintain normal business operations does not give the employer the right to close the business for urgent necessity in relation to business.

(3) Examination of necessity in relation to business

It is the basic inclination in judicial rulings that the matter of urgent necessity in relation to business shall not be estimated on the basis of business portions or a certain branch’s business condition, but shall be estimated synthetically by evaluating the entire business.

1) Abolition of a related department due to cessation of production or reduced production
A company whose business is to produce aggregates and ready-mix has been in operation beside the Han river, but has to stop producing aggregates and reduce its business volume. Therefore, the company had to abolish certain workplaces and reduce business volume. This case was considered an urgent necessity in relation to business.

2) Abolition of one section due to managerial reasons and merger of all employees to other business
A school corporation, which was operating a hospital, abolished an Industrial Health Section and assigned the related jobs to its subsidiary Industrial Health Research Center. Then, the school dismissed all employees concerned in order to transfer them with similar working conditions to the Research Center. These actions were held as justifiable dismissals.

3) Reorganization designed for business improvement
In the course of being transferred to the private sector, a public company had to prepare for free market competition in the fertilizer industry, cope with decreasing competitiveness due to careless business practices, and streamline or revise the organization to resolve deficit issues. Therefore, the dismissals were justifiable.

4) Abolition of a few business parts which are chronically losing money while the total business is profitable
In view of the total business, the company recorded surpluses in business performance. However, some business parts were chronically losing money due to work inefficiency. As such chronic deficit is due to an organizational problem, the dismissal of employees by the abolition of the corresponding business parts can be accepted as justifiable.

5) In cases where the company has abolished one business part since it has operated two business parts separately
An employer can abolish his business corporation and dismiss all employees, which, in principle, is the owner’s managerial right. If the company owner closed his corporation in an attempt to disturb the labor union’s activities, this can be considered an unfair labor practice. The employer operated his own business, but, due to a business reason, he separated his business into two business units, and divided their personnel, facilities, and accounting. However, although the two businesses have very different internal business operations, they cannot be deemed as different entities because the businesses are owned by the same person. In this case, if one business part is abolished, it can be interpreted as streamlining the business rather than abolishing one business. Therefore, the employer cannot dismiss all employees working in the abolished business unit.

6) Workforce reduction is allowed as a result of the decision to contract out a part of the business in order to resolve economic difficulty in that area of the business.
A company, after suffering a 4-year long deficit in a particular business department, decided to contract out the department in an effort to resolve the deficit issues and, as a consequence, dismissed the employees working in the department. In this case, it is acknowledged that such employee dismissal was done for an urgent managerial reason.

2. Efforts to avoid dismissal

An employer has made efforts to avoid dismissal by taking all kinds of managerial measures to cope with business difficulties facing the company. However, if he/she cannot overcome his business difficulties through these efforts, and if he/she cannot expect any other measures except for dismissal, dismissal for managerial reasons can be accepted as a last resort.

(1) Concrete methods to avoid dismissal

① Improvement of business policies or a change of managers, or business rationalization through scientific and rational management of production methods
② Reduction of office size and integration of the organization
③ Transfer of personnel
④ Reduction of outsourced personnel(subcontract, temporary, or dispatched employees)
⑤ Cessation of new hiring and discontinuance of renewal of short term contracts
⑥ Reduction of production, cessation of holiday/overtime work, use of unused leave(annual and monthly leave) and applying selective working hours
⑦ Reduction of directors’ wages, abolition of bonuses or special allowances exceeding the collective agreement’s standards, and other cost-saving measures
⑧ Temporary suspension(closing, employees stay at home)
⑨ Promotion of early retirement or voluntary application for retirement

(2) Judicial rulings about efforts to avoid dismissal

1) In case where there are no other methods except dismissal
A company abolished its Business Unit 1 due to urgent necessity in relation to business and is about to dismiss all employees. Business Unit 1 and Business Unit 2 have not had any business relations in the sharing of history, operating management, and/or exchanging employees, and each business unit has maintained its own independence. In this case, the company has no obligation to avoid dismissal by transferring or dispatching the employees belonging to Business Unit 1.

2) In cases where there is no effort to avoid dismissal, such as transferring employees to another plant or temporarily closing, etc.
A company closed a plant in a certain area due to chronic deficit and did not transfer employees to other plants. The company did not take efforts to avoid dismissal, such as temporary suspension, etc. Therefore, it can be admitted that the company did not complete efforts to avoid dismissal.

3) In cases where there are no efforts to promote voluntary retirement, streamline the working process, etc.
When a company was expected to reduce personnel in the winter season, it did not promote voluntary retirement, but rather hired new employees. The company also did not make efforts to establish concrete plans to promote the efficiency of production and to prepare for the time to reduce personnel. Therefore, it cannot be held that the company did its best to avoid dismissal.

4) Exceptions for efforts to avoid dismissal
A company whose business is to produce, sell, and export clothing has three plants: Plant A, Plant B, and Plant C. Plant A produces high-quality female clothing, Plant B produces clothing for export, and Plant C produces low-quality products like socks for their major products. Plant A requires very high quality machinery and skilled workers and pays higher wages than Plant B, which produces a great amount of clothing for export in a mass-production line. Plant C requires simple skills from its workers and pays less than Plant B. Therefore, each plant operation is too different to exchange employees. When the company decided to close Plant B due to urgent necessity in relation to business and dismissed all employees without transferring its employees to Plant A and Plant C, it can be accepted that the company made efforts to avoid dismissal.

For further questions, please
call (+82) 2-539-0098 or email bongsoo@k-labor.com

    • 맨앞으로
    • 앞으로
    • 다음
    • 맨뒤로